TREASURIES-Yields reverse from Tuesday selloff as inflation concerns persist

(Updates with latest market activity throughout, adds comments)

By Matt Tracy

May 20 (Reuters) - Yields on U.S. Treasuries moved lower on Wednesday following a selloff in the previous session, as uncertainty persisted around the war with Iran and the path of inflation.

The yield on the benchmark 10-year Treasury note was last down 3.6 basis points on the day at 4.631%. It reached its highest level since January 2025 on Tuesday, surging to 4.687%.

The 30-year Treasury bond's yield, which is seen as a barometer of geopolitical and fiscal risk, was last down roughly 2.6 bp at 5.156%. It briefly touched 5.197% on Tuesday, its highest since July 2007 before the Global Financial Crisis.

A selloff in U.S. and global bond markets has taken hold over the past week as peace talks between the U.S. and Iran have stalled and energy prices have remained elevated since the war started in late February. Brent crude oil prices were just over $108 per barrel on Wednesday after hitting $111 per barrel on Monday.

"We're at a point with yields and the bond market selloff where the equity market is starting to take notice," said Tim Saurmelch, senior portfolio manager for fixed income at SEI Investments.

"When you get to the point where yield levels become more elevated, the cost of geopolitical uncertainty tends to be a little bit less abstract," Saurmelch said, noting he expects the Fed to hold rates steady in the near-term.

Investors are now pricing in a 48.3% chance the Fed could raise rates in December, and an 90.8% chance it maintains current rates at its next meeting in June, according to the CME FedWatch tool.

"Yesterday's selloff was based on inflation expectations," said Eric Jussaume, director of fixed income at Cambridge Trust.

"I think if you just look at what's going in the Fed futures market you're seeing a big shift from earlier this year," Jussaume later noted.

The 2-year Treasury note yield, which typically moves in step with interest rate expectations for the Federal Reserve, was last down 3.9 bps at 4.08%.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was last at 54.88 bps.

Minutes from the Fed's April Federal Open Market Committee meeting will be released later on Wednesday.

The Treasury Department is slated to auction 20-year bonds on Wednesday, which market participants will watch closely for signs of any cooling investor demand.

(Reporting by Matt Tracy; Editing by Alex Richardson and Nick Zieminski)